Foreign and local investors are showing interest in the Israeli private equity fund's fourth and largest fund.
Israeli private equity fund Fortissimo Capital is about to raise its fourth and largest ever fund. Sources inform that Fortissimo has begun raising $400 million (NIS 1.6 billion) for the fund, which is slated to begin operations in 2015. In recent weeks, the fund's partners have been meeting with investment institutions and presenting the plan and strategy for the fund. No response to the report was available from Fortissimo, as of web posting.
Only two years ago, Fortissimo completing its $265 million third fund. The fund decided to start another fund because its second fund had already invested 70% of its money. The second fund was oversubscribed, and was enlarged by $15 million as a result. Fortissimo's first two funds, raised in 2004 and 2008, totaled $80 million and $150 million, respectively.
The decision to peg the fourth fund at $400 million was due to strong demand for the previous fund from investment institutions and the fact that private equity funds, headed by FIMI Opportunity Funds, Fortissimo, Sky Fund, and Viola Private Equity, have in recent years become the dominant player in the mergers and acquisitions market for non-financial businesses in Israel, combined with the fall of the local tycoons.
Most of the investors in Fortissimo are local investment institutions, but foreign institutions have also begun to express interest in the fund in recent years. In contrast to Fortissimo's first two funds, 40% of the investors in the third fund were financial institutions in the US and Europe. Large US pensions funds are also among the investors, and according to market sources are slated to play a major role in the fourth fund.
Founded a decade ago, Fortissimo, led by cofounder and managing partner Yuval Cohen, is one of Israel's leading funds. Fortissimo has raised a total of $500 million to date, mostly from local institutions. Cohen, Shmoulik Barashi, Eli Blatt, Mark Lesnick, Yochai Hacohen, and Yoav Hineman, the fund's founders, are very focused in their work. They invest in mature companies that have reached a turning point, so that a change in their management and a capital injection are likely to accelerate their growth. Most of the emphasis is on technology and industrial companies that the fund believes have significant upside potential.
Up until now, this strategy has been successful. The fund's leading investment was in SodaStream International Ltd. (Nasdaq: SODA), which develops home systems for mixing carbonated drinks, an investment by Fortissimo's first fund. Fortissimo invested $10 million in the company in 2007, when it was experiencing difficulties. After selling its stake in Sodastream's offering, Fortissimo came away with $200 million. This investment was one of the reasons for the first fund's return: it made six times its investment, amounting to an impressive 42% annual internal rate of return (IRR).
Fortissimo's second fund was also a big success, for example its investment in the Cadent software company. In 2011, Fortissimo sold Cadent to medical equipment company Align Technology for $190 million, tripling its investment in only two years. In recent years, the fund invested in companies in various sectors, with the list including glass manufacturer Phoenicia, Comverse Inc. (Nasdaq: CNSI) spinoff Starhome, Solcon, and Kornit Digital. Other companies improved by Fortissimo include AOD and Nur Macroprinters Ltd. (OTCBB:NURM).
In recent months, Fortissimo has been promoting its offering of communications equipment company Telrad Networks Ltd. at a company value of NIS 300 million, before money, but this has not been carried out. The decision to postpone the offering was taken following the demand by investment institutions to cut the company value by 25%; Telrad was unwilling to hold an IPO at any price. Fortissimo acquired an 86.7% controlling interest in Telrad at a company value of NIS 100 million, so the planned issue price would have been three times its investment.